By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A “settlement that does not disturb Freeport’s governance” would be the “best outcome” from the Government’s $357m dispute with the Grand Bahama Port Authority (GBPA), it was argued yesterday.

Dillon Knowles, the Grand Bahama Chamber of Commerce president, told Tribune Business ahead of the two-week arbitration between the parties that is set to launch on Monday that “nobody in Freeport In know of wants to have the Hawksbill Creek Agreement and the administration of Freeport fall away” to be replaced by governance from Nassau.

He added that it was vital the arbitration proceedings, which will ultimately decide whether the GBPA owes the Government for public spending in Freeport over and above tax revenues generated by the city, determine for good what is the legitimate income and expenditures that Nassau should earn/pay within the Port area “so there’s clarity going forward”.

The GB Chamber chief told this newspaper that the worst-case scenario would be for any further dispute over the issue to erupt between the Government and GBPA, while acknowledging that an unfavourable arbitration outcome could leave Freeport’s quasi-governmental authority - and its owners, the Hayward and St George families - struggling to pay if it is deemed they do indeed owe $357m.

Alluding to the aversion of both GBPA licensees and Freeport residents to their city being administered and managed by the Government, or an authority under its control, Mr Knowles said: “Freeport has not been a lucrative proposition for anybody over the last few decades, including the Port Authority.

“Anything that further exacerbates that is not going to bode well for the city’s ability to manage itself. There is nobody in Freeport that I know of that wants to have the Hawksbill Creek Agreement and the administration of Freeport fall away and become just a part of the public service.

“We all enjoy the fact that whatever we have to pay we actually get the services in Freeport we pay for. To have that fall away and become just part of the regular ‘free services’ that the Government offers around the country, and consumers complain about vehemently, that will not be something the people of Freeport will be interested in having happen,” he added.

“Any dislocation of the current regime, whether you like the current shareholders of the Port Authority or not, the fact is Freeport is well-administered.” Any hopes of a last-ditch settlement between the Government and GBPA appear to now be dim at best, with the start of arbitration proceedings now just days away and neither side seeming to give ground.

Still, Mr Knowles told Tribune Business: “The best outcome would be that the two parties negotiate a settlement that does not remotely disturb the governance of the Port area. I don’t see any winners in this at all. There is enough ambiguity in this whole process that it’s difficult for there to be... if either side wins it’s going to result in even more animosity and disruption to Freeport than any good it could possibly do from my perspective....

“The best outcome would be that there’s clarity, clarity in law, as to what is the intended revenue streams from Freeport that the Government can count as revenue, given all the ways the Government raises revenue in the country, and what are the Government services it should be netting off as expenses so there’s clarity going forward and we are not in this position this time next year.”

Many observers believe the Government’s $357m demand is designed to pressure the Hayward and St George families to sell and exit the GBPA, which holds the quasi-governmental powers, as well as Port Group Ltd, the affiliate that holds all the key infrastructure and for-profit assets.

The Government is likely hoping that a ruling in its favour, and any determination that that the GBPA owes significant sums, will result in the families becoming forced sellers because they are unable to pay. “There’s a significant question as to whether the Port Authority would be able to pay such a bill should it be deemed to be valid,” Mr Knowles told Tribune Business of the $357m claim.

“Again, I say the simple solution to this is there needs to be an objective finding as what are the Government’s legitimate revenues and what are the legitimate expenses in accordance with the [Hawksbill Creek] Agreement, or essence of the Agreement, so that going forward everybody is clear on what that is and the two parties are no longer talking about disputed funds where they can’t agree what is valid.”

The sum demanded by the Government is likely to have increased significantly since the $357m arbitration claim was launched given that the Davis administration has signalled in its annual Budget that it intends to bill the GBPA, Freeport’s quasi-governmental authority, for $75m every year to fund incurred expenses that are not covered by tax revenues generated in the Port area.

These annual billings were to take effect every year from 2024-2025, meaning that - at least in the Government’s eyes - a further $75m is already outstanding, which would take the total now demanded to $432m. And, given that it is now the 2025-2026 fiscal year, a further $75m is coming due.

Mr Knowles, though, challenged how the Government could project a $75m GBPA billing for every future fiscal year as it was impossible to know whether a “shortfall” has occurred and what the amount. He added that he was unaware of the Government’s dispute with the GBPA deterring or turning-off Bahamian and foreign investors, “but it doesn’t mean there aren’t any”, and all are likely to be monitoring the dispute and its outcome.

The PricewaterhouseCoopers (PwC) accounting firm was hired by the Government to analyse, and calculate, just how much the GBPA owes the Public Treasury for public spending in Freeport that exceeds the tax revenues generated by the city. The GBPA denies that anything is owed, alleging that Freeport contributes around $200m annually in tax revenues.

However, the Government is seeking reimbursement of the claimed $357m under section one, sub-clause five, of the Hawksbill Creek Agreement, Freeport’s founding treaty, which stipulates that it can demand payment from the GBPA for providing “certain activities and services” if the costs involved exceed certain tax revenue streams generated in the city.

The original 1955 clause required the GBPA to provide rent-free office and living accommodation to government employees involved in “the maintenance of law and order, the administration of justice, the general administration of Government, the collection of Customs Duties and other revenue and the administration of the Customs Department the administration of the Immigration Department, Post Offices” and other functions to be mutually agreed.

The GBPA was also required to “reimburse the Government annually” within 30 days of detailed accounts being presented by the latter, but only if “Customs Duties and emergency taxes received by the Government in respect of goods entered or taken out of bond at the Port Area are less than the amount” spent by the Government.

Multiple sources have questioned why the Government has waited until now - some 60 years or six decades - to try and enforce a Hawksbill Creek Agreement clause dating from the 1950s and 1960s. They argue that it smacks of the Davis administration using this as leverage to force the Haywards and St Georges, the GBPA owners, to sell and exit after they declined to accept the Government’s purchase offer.

Prime Minister Philip Davis KC has consistently asserted that fundamental change is required for Freeport to achieve its true economic potential. He has argued that the GBPA has failed to live up to its governance and development obligations under the city’s founding treaty, the Hawksbill Creek Agreement, and that the two St George families are not up to the task required.

And the Hawksbill Creek Agreement clause at the centre of the dispute may not be all it seems. It was last amended in 1960, when Freeport was five years-old, the city’s development very much in its infancy, and the only revenues earned by the Public Treasury at the time from the Port area were Customs duties.

While it indeed stipulates that the Government should not spend any more in the Port area than it earns in revenues, and that any excess costs over and above the latter should be reimbursed by the GBPA, that clause has not been amended to account for either the Freeport of today or multiple taxes that have been added since then.

Thus VAT, departure taxes and a host of other revenue streams have to be factored into the calculation of whether the Government is spending more than it is earning in Freeport. Several sources have suggested that, rather than go to arbitration, the two sides should instead negotiate amendments to section one, sub-clause five of the Hawksbill Creek Agreement to ensure it is fit for purpose and attuned to the modern world’s realities.